How the US election might affect AUD/JPY

Risk appetite has increased in the last 24 hours, with traders now feeling a Clinton win and split Congress is the best-case and most likely scenario.

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IG Analyst

2016-11-08T05:46:59+0000

Source: Bloomberg

This seems likely now, especially with Clinton seemingly polling well in the key battlegrounds of Florida, Nevada and New Hampshire. I have seen models suggesting Clinton will get anywhere between 274 to 322 Electoral College votes, all above the required 270 needed to secure victory.

We can also add the unbelievable moves in iron ore, coking coal, copper and steel futures, which have helped with the view that Australia’s terms of trade are going to see huge benefits in future current account deficit reads. This is having a positive effect on the AUD and, specifically, against the JPY.

Having seen price close above the 2015 downtrend at ¥81.43 and the highest levels since July, my preference is to wait for a close above the 61.8% retracement of the April-to-June sell-off at ¥81.06. This would give me confirmation that the bulls are in full control and we should see a potential extension into the 84 level.

Naturally, the risks are we don’t see the US election going the way of the market base-case, but this strategy removes the actual election and will only be filled when the stars are aligned. Let the markets dictate the position.

Trade idea: buy AUD/JPY on a close above ¥81.06, stop loss at ¥79.30, and target ¥84.00.

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